Investors and stakeholders are excited by the Federal Government’s planned divestment of its stake in Joint Oil Ventures (JV) with private oil firms.
The major policy shift will see the government slash its equity in upstream operations significantly to possibly as low as forty percent; a decision private oil firms, particularly multinationals, are anxiously warming up to.
Reason for the New Move: Available information has revealed that the Presidency took the decision to cut its stake in JV oil assets, refineries, and other downstream subsidiaries as part-fulfillment of its Economic Recovery and Growth Plan, which dates back to 2017.
The deal is expected to be consummated and delivered before the 2019 fiscal year is over.
In the same vein, the government is pursuing the divestment of its stakes in JVs to help meet about 10.1 percent of its projected revenue for 2019. The budget presentation document says,
“The overall revenue performance in 2018 is only 55 per cent of the target in the 2018 Budget partly because some one-off items such as the N710bn from Oil Joint Venture (JV) Asset restructuring and N320bn from revision of the Oil Production Sharing Contract legislation/terms have yet to be actualised and have thus been rolled over to 2019.”
What You Should Know: The Nigerian upstream operational structure is essentially divided between JV onshore and shallow water with local oil firms and multinationals. It also entails Production Sharing Contract (PSC) between both parties in deep water offshore, which has attracted enormous interests and massive involvement of International Oil Companies (IOC) over the years.
Ownership Structuve of JVs: The JV between the Nigerian National Petroleum Corporation (NNPC) and Shell allows the NNPC to own 55% stake while the one between the NNPC and others like Chevron and Exxonmobile allows the NNPC to own 60% shareholding.
The JV contract requires the government and the other parties to contribute to the funding of the operations according to their stake in the partnership.
However, the government has, over the years, been accused of failing abysmally to live up to this obligation. This has made it heavily indebted to the other parties.
Why This Matters: If the deal works out, the upstream sector of the oil and gas industry will have more power to operate with less government interference.
In other words, this will afford private oil companies more power to determine the operations of the sector. This, coupled with the aggressive approach to business for which private investors are known for, higher efficiency in the oil and gas sector will be guaranteed.
Also, investors will be attracted to put their money in the lucrative oil and gas business, giving them a platform to leverage key opportunities while unlocking other latent opportunities in the exploration business.
On the part of the government, the proposed divestment of its stake in the oil and gas JVs will not only allow it to meet 10.1% of its 2019 revenue target. According to Austin Avuru, the Managing Director/Chief Executive Officer, Seplat Petroleum Development Company Plc, the divestment would help generate fund for the government to finance the 2019 budget.
On his part, the Managing Director, Aiteo Eastern Exploration and Production Company, Mr Victor Okoronkwo, described government’s move to sell off 10.15 of its JV participation as a very good way of encouraging private joint venture partners to further capitalise and consolidate their positions.
Source: nairametrics
